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tv   [untitled]    October 2, 2012 8:30pm-9:00pm EDT

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overcoming a barrier like this seems impossible. but you crave something higher. and when you reach the people. who do whatever it takes to get all the talk of the world on r t. good afternoon and welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for tuesday october second two thousand and twelve samsung versus our poll. the headphone jack is going to be on the bottom. ten predictors multiple ones but if you need me. and that was samsung's ad taking a stab at the apple i phone and its customers and the patent war between the
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companies samsung has also hit back suing you could say is in retaliation to a prior apple suit claiming the i phone five infringes on its patents now it's not the only one taking a stab at the consumer products giant it's been touted the largest most valuable public company of all time by some calculations we'll talk to analysts reggie middleton who apple's next development will be this i bubble was a long as mortgage task force has finally wired the new york attorney general is suing j.p. morgan alleging widespread fraud by its bear stearns unit in the sale of mortgage backed securities back before their around the financial crisis will discuss the impact and thousands of millionaire households in the u.s. collected unemployment insurance in two thousand and nine this is according to the congressional research service so who exactly counts as unemployed anyway but we're down with the bureau of labor statistics considers it and word of the day let's get to today's capital account.
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measured by sheer market cap as many of you know apple set a record in august as the most valuable u.s. company the world has ever seen now in a world where too big to fail has been singularly associated with the financial sector could a single tech and consumer products giant have a disproportionately visible effect on the larger us economy and if so do we all need to care about something like the i phone five launch or how something like the i phone's new features compare to competitors well if so here's a quick glance. it goes from here to here.
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just bigger screen goes from here. let's go to big screen this was a big one and we can share because it's silly to watch a video you're sending an e-mail you're going to get them for sure we know this time the next. i was again comparing to samsung which ridiculed apple in that last ad and that companies have been going back and forth with litigation and kind of patent war but samsung is not the only one who has become more bearish on apple in fact entrepreneurial investor an analyst reggie middleton who nailed facebook by the way he did so on this show has been raising concerns about apple he is back back to tell us if he thinks apple's next big development will be what he calls i bubble or i pop event so first reggie middleton welcome back to the show thank you so much for being on today you very welcome to be that great we always love to have you and you know you totally nailed facebook you were out before the i.p.o.
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saying hey this thing is way over valued now you're out talking about apple and uttering words like i bubble i popped posing questions such as is apple poised to collapse this stock market argument and how is apple one company poised to do that kind of damage ok well it's quick explanation apple is a very strong company when i comment on apple apple has such a strong following it's in many circles it's akin to a cold so it's not as if i think it was going to collapse or quarter business going concern but this is the issue the expectations of apple and realistic apple has been on its head terms of growth product innovation etc over the seven years or so that it's very difficult to maintain the next paradigm through a paradigm shift for any technology company so apple's going going forward i suspect spec growth to slow significantly who want to has much more competition
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than it did when it was growing very fast number two a lot of the factors such as market maturity it doesn't no longer has its iconic leader steve jobs it said it will come into play and three the competition does have in the form of google is very very difficult google's business model is designed to attack silly apples that. now as for how it crashes the market if you take a look at apple apple. if you take a look at the computer industry as the find in this. apple's market capitalization is ninety seven percent of the computer desktop wow history and it's a significant amount of the actual technology sector itself. days apple is actually according to certain bugs which is they were taken up to twenty percent of the trading volume now is that that's ridiculous so let's assume that apple does sell as many main i phone five is possible as predicted but it still sells a lot apple slides ten fifteen percent fifteen percent slide in apple as you know
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ninety seven percent of the computer industry computer sector industry i'm sorry yes so apple is simply too big i was grossly too big to fail. big to not affect the equity markets and i disproportionate fashion right and too big not to feel the pain if it disappoints just relative to expectations which it's an expectations game a given if they do very well and sell a lot of i phones if it's less than expected it could still take a hit in terms of the stock price now you talked just now about the volume which brings me to the issue of hedge fund i know you've written about this and others have talked about the role that hedge fund money has in apple's stock price apple has attracted hedge fund money many had fund investors what role does this investment play in apple's stock price and then what would happen if these hedge fund investors pull out. well it drives the stock price up of course you have significant demand and the nature of
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a lot of the hedge funds you know i don't know these guys personally but if you have a hedge fund who's so. generated by investing in apple then you have someone who basically may not be sticky money and remember headphones. twenty. to their investors and their limited partners now if you're paying two hundred twenty for basically leverage better you know someone buying apple and everything up on it you're wasting your money weeks of people out of stock yourself so. reverses it goes back to mean. something that's not in doubt and then you going to have a massive exit i think there's roughly two hundred sixty to two hundred seventy five hedge funds that have a significant decision and. when i mean significant i don't mean the shares so when they hit the exit the exit is going to be blown out the door and the water not everybody is going to fit through the door and you can have a significant have over exaggerated drop in the pushchair price just like you
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probably had over exaggerate it rising up with your price in a way ok and i think that's an interesting point to you think that it's when people are going to realize hey these hedge fund managers are just putting my money at apple i could easily do that and not have to deal with these hedge funds or the fees in order to do that so let's establish a little bit more into the how and why. apple could do major damage if the stock price falls just what would create that i know that there has been pressure on apple's margins or concerns about this how do you factor in that and what is behind the margin pressure ok so let's go through a quick explanation on my view of margins and apple if you take a look at a lot of people say reggie you've been saying apple product margins are about to go down which they have put corporate margins as an entity have been on the rise the reason is used to be a computer company. their primary revenue used to be selling desktop computers and desktop notebook computers then they came up with we invented the portable media
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player which was dominated by the sony walkman with the i pod ok the i pod became one point the greatest revenue driver and the greatest earnings driver and they had much much higher margins you know very little money to make the stuff they sort of for much money they made it for and then from the i pod it came of the i phone which is even a greater revenue and earnings driver which had even higher margins ok so the margins on these higher margin higher margin products actually drove up the margins the corporate margins and to the margins of apple and from the i phone to store this most popular and highest revenue and highest earning put boosting product they attempted to diversify because i phone was producing one seventy two percent of their earnings so they created another category which the i pad came to diversify the i pad actually has lower margins ok but then i phone but still it has higher than regular computers now the more mobile products that they sell. i phone i pad
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the higher the higher the corporate and the margins are you're going to apply apple is now no longer a computer company but it's a portable device company and if you look at a phone revenue perspective or only perspective apple is a phone company your smart phone company just like nokia were anybody else that's where the bulk of their earnings in revenues come from ok and the i pad comes in second so now that these mobile products of almost taking over apple you're not going to have that earnings increase with a product shift and now you have to rely soley on the margins of the mobile products but the mob or the margins the mobile are trending down that shutting down for two reasons is the market's not saturated put is starting to mature and you have significant competition from google's android google sanjoy is in my opinion and technically superior or west up or in. system it has various. manufacturers
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that put out significant the very advanced equipment and they put it a very very thin margin so you're talking they have they give the system with equipment that's very very advanced and it gets a grade of roughly every three months you know between a different manufacturers in order for apple to compete with that they have two choices right they could drop the price at. which of course just margins or they could increase the technology that goes into the i phone which also drives margins so no matter what choice they have it's less so much as and you see that going as time goes on the cost more more to make the i phone five and make the i phone four and i phone three it costs more to make the latest i pad versus i pad superstition yeah that's interesting and it's interesting the product mix that is driven. now compounding their margins and their earnings potential let's switch gears not switch gears but when you hit the streets reggie you hit the streets around wall street to talk to other people about your thesis in your analysis and to kick the
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tires a bit i want to play what someone else said in regards to what you're saying he agreed but he had a slightly different thesis on why let's take a listen. with ninety seven percent the market capitalization of the computer industry you know if. i pad as you do well there goes. the computer industry right as defined by. station potentially be the message i agree to a certain extent but apple's been able to do is come out with a new product to then reinvigorate those growth expectations and those margins in its earnings potential and i just don't think you can continue to bet on apple coming out with a new generation of product every two years. so his point is that what's going to happen is that apple is just not going to be able to keep coming up with these products that are gangbusters and hugely received he says other tech companies have had one or two apples had six which is a clear sign that hey the good days are behind they're not going to have this kind of product launch again going forward we just have a minute before the break but what do you think of that. i think it's
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a very valid point you know if you take the other tech titans such as i.b.m. microsoft. google etc you know microsoft had a few hits had hit after hit many of those hits not to take any credit away from apple it's a wonderful company but a lot of this success was due to the company's competitors their competitors have not gotten a game together because of the assistance from google's android now apple has tried and one of apple's biggest assets appears to have been steve jobs. was on the rise . fell he came back apple came back again you know and you know it's a good chance of steve jobs not coming back now so now is the steve cook who seems to be a technical operations guy but just doesn't seem to have the mantra following that steve jobs has now i think steve cook i mean i'm sorry that cook is going to have. a rough time because apple's downfall started before the death of steve jobs
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because of the competition that came from google's android but there's a tale so you don't get to see the full effect the enjoy did after the fact and then after the fact is after steve jobs i mean i'm sorry it has taken the man to a c.e.o. yeah you know but because it affects you know he's going to get you're going to be poor tim couldn't show everything and everything blamed on this poor guy and then steve jobs is day if i buy the colts a couple follower exact and some analysts so i want you to stay right there we're going to have more with you after the break we've got to take a quick one though but we'll have more with entrepreneurial investor reggie middleton and still ahead two you've heard about the thousands of people who are out of work or searching for jobs but into ninth word of the day we'll talk about the real unemployment rates and why the numbers you see in the news headlines don't work like that actual amount of people who are looking for work but first your closing market numbers.
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good to.
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download the official location to cell phone bridge stream quality and enjoy your favorites. if he is not required to watch all it's here all you need is your mobile device to watch ati any time. to. cool. welcome back let's combine what we were talking about before the break apple and if it's going to become an i bubble or if it's going to i pop and let's combine that with the next story i want to talk about with our guest reggie middleton which is q so q. is supposed to boost unemployment but maybe if it doesn't there won't be enough people flushed with cash to buy the new i phone and that's where the real threat
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could be i don't know i'm just kind of joking about that but brad you middleton who was great out on wall street talking to folks by the way it's hard to get people on wall street to talk they usually just run by me but he talked to another ground the street about impact and i got a great response let's take a listen. let's prevent big business from expanding easy low interest rates access to credit getting being able to qualify for number one but. it also has to do with their perception that the economy is going to grow this morning is that con to be stagnant and it's just flat it's not worth the risk of borrowing more money even at low interest rates to expand your business because you don't see the future sales interesting point let's bring back entrepreneurial and vester reggie middleton author of the popular boom bust blog too i should say so reggie first of all great job out there today you elicited some great responses from people who had
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some great conversations so what did you think of that gentlemen's analysis is that does he see it the same way you do as far as the impact of low rates and. basically i agree with them. on first the chicken and egg scenario but if you approve business manager you don't take on debt without a business case for and that if you do then the manager and you will soon be out of business but the government of what the what the fed and the government actually put the fed is trying to do is if it is trying to take businesses who rely on. free money more risk free money to basically stay in business have to be felt a lot of people would like you know the line that was given by. chairman bernanke was that he is buying forty billion dollars a month with the growth of mortgage backed securities to boost employment which is absolute total absolute nonsense you know unless the forty twenty five million
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mortgage backed security traders are going to get their jobs back. you know there's really no sense in trying to make a linkage between mortgage backed securities and boosting employment what he's doing is he's not so back to a bailout of the banks and he's bailing out the banks because the banks almost like you running into the could of the issues with mortgage backed securities ok the example would be the fact that bear stearns j.p. morgan. purchase is getting sued for its fraud on mortgage backed securities and lo and behold what does chairman bernanke you do before you know he decides about forty billion dollars a month which was that if they wanted to this is interesting let me let me die more into this because if our audience is ever mayor with the news that came out so obama set up this mortgage taskforce a while back and we haven't really heard much but this is the first that we've heard so it's headed up by new york's attorney general and he just filed suit today against j.p. morgan and he's alleging fraud surrounding the bear stearns unit around the
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financial crisis and leading up to it so j.p. morgan of course acquired bear stearns so this is having to do with mortgage backed securities sales. i think before j.p. morgan acquired bear nonetheless it's surrounding mortgage backed securities and you're saying that you actually think there is a connection between the fed's announcement of targeting mortgage backed securities so i'm curious could you just follow through a little bit more for our viewers the connection between a suit like this and how that actually affects mortgage backed securities in this market let's suppose bear stearns has a large before you have made i think. three which is of poor backed securities that almost everybody in the street realize is full of nonsense. fraud etc but you know everything to go depends what the bid is so set of getting one hundred cents and i dollar eighty cents on a dollar i do three sets of the dollar for twenty cents here comes new york right alleging that this allegation seems to be cropping up everywhere there.
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so mortgage backed securities after they stop performing ok there's so much bad securities after the market is behind underlying the securities had already stopped paying and so that's outright fraud. after you know turn on and in doing that you know that of course tries to quit in the market for this stuff. alone for the coincidence of course you know no strings attached a week before the totally independent political federal reserve decides to buy a forty billion dollars with this is stuff you know every month for different amount of time now of course he says go do this to boost employment but the only employment. security is on my side. if you really want to boost employment but if you take that money and give it to somebody who would give it up so you take your forty billion dollars a month you give it to a small business administration who guarantees loans to small business so now you
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have forty billion dollars going in this business loan guarantees you have a multiplier effect because those guarantees are back actual loans. so that forty billion dollars becomes four hundred billion dollars per month and money to small businesses now small businesses see a business case. into you week before they can go out and they can borrow money and they can hard people do because. that's closer to what an economist we have on the show steve says is q.e. for the public instead of for the bankers it's an interesting idea crony capitalism of course don't know how we would deal with that in terms of the government giving out small business loans but i applaud your creativity and your innovation regimentals and it's always a pleasure thanks so much for being on the show very welcome look for to come of it .
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all right it's time now for word of the day where we break down a financial term or concept for our very smart viewer but just perhaps not the financial expert and before i tell you exactly what it is did you catch this story today almost twenty four hundred millionaires pocketed unemployment benefits that was for two thousand and nine can you believe that so evidently unemployment insurance doesn't discriminate based on how much you were making before you got laid off but you may be surprised to learn how much unemployment statistics do discriminate based on official definitions of what it means to be technically jobless so that brings me to our word of the day which is drum roll please unemployment what is it let's hear from mitt romney. those are the most reliable sources was that if you take into account all the people who are struggling for work or just stopped looking the real well that rate is over fifteen percent.
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so there is some comedy at the beginning and some political rhetoric but let's find out how one would technically define unemployment by one of course i mean the bureau of labor statistics which comes out with the official numbers each month unemployment is unemployed someone who is actively searching for unemployment for employment excuse me but is unable to find work so the unemployment rate is the number of unemployed persons divided by the number of people in the labor force so what constitutes actively searching while the b.l.s. survey counts anyone who says they applied for work in last four weeks you have to have a permanent residence so i guess when i was couch surfing early in my career i wouldn't have qualified to be surveyed and i guess i would not have been unemployed so there's that what about the labor force who is in the labor force to be considered part of the labor force you must be sixteen and older not active duty military or
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part of the prison population and you must be employed or actively looking for work so the labor force is unemployed and then the employed which i should mention counts the underemployed so on the prison worker thing you're not in the labor force you were just a magic invisible g.d.p. inflator so there's just one glaring example of some problems here but one is not included in the labor force are the marginally attached these people are out here ok and they want work and they're available to work but they have not actively search for a job in the past four weeks and this includes discouraged workers in this category these people that have stopped looking for work because they believe they can't find it so if you're homeless and you haven't applied for a job in years you are not factored into this unemployment equation now there are several different measures of unemployment calculated by the b.l.s. ranging from do you want to do you six they're all right there they parse different aspects of the employment situation or the unemployment situation and so it's kind of a choose your own adventure in terms of what you want to look at in real terms but
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when you hear the unemployment rate. mentioned it's most likely referring to the use three measure ok this measure counts only unemployed workers who have actively search for a new job within the past four weeks the other most measure is the use six this is a broader measure it's not strictly a measure of unemployment because it groups the unemployed along with the marginally detached and the underemployed so the part time workers that maybe don't want to be part time along with the no longer looking so they use six is the broadest measure of the labor market agony we have and so this is what some call a more reflective measure of unemployment it's been around fifteen percent for the past three years i should mention but bigger picture do you are already see the problems with the meaning of the unemployment statistic is often cited you three does not include discouraged workers so when the economy weakens unemployment increases but if the economy goes further into recession the unemployment rate may
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fall as more and more people become discouraged and leave the defined labor force and in fact a decline in the labor force contributed to a fall in unemployment in august which gave rise to these headlines which made it look like this was positive that unemployment was falling to eight point one percent when in fact more people were leaving the labor force and that's what drove it and also the opposite is of course true as a recovery gets underway and unemployment might spike because discouraged workers again start looking for jobs so for those of you who may of being unemployed simply means that you don't have a job now you know just how much more complicated unemployment in the official sense really is and that's our word for today word of the day and that is also for our show because that is all we have time for but thank you so much for watching and make sure to come back tomorrow and in the meantime you know you can follow me on twitter lauren lyster you can go like our facebook page you see the address
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right there facebook dot com slash capital account it is the only one there. some imposter so you want to make sure that you check in there and we are going to be posting some fun behind the scenes stuff to catch us and h.d. on hulu watch us saying you tube and from everyone here thanks for watching and have a great. wealthy british soil the sun. spot on the. market why not. come to. find out what's really happening to the global economy with mike stronger for a no holds barred look at the global financial headlines tune into cars report.


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